December 4, 2016

At a recent conference attended by various participants in
the power industry, including regulated utilities and independent energy
producers, an astute speaker quipped that “energy storage proponents are
quickly becoming the cool kids in the room.” Everyone chuckled knowingly,
because policy makers in various jurisdictions, especially California, are
driving the power industry to make energy storage happen in a meaningful way.

California’s investor-owned utilities are pumping hundreds
of millions of dollars into innovative energy storage projects in an effort to
satisfy the state’s energy mandate. Although a handful of storage technologies
are getting a big boost from that effort, there is little doubt that roughly 75
percent of the state’s energy storage needs in the coming decades will be met
by pumped storage hydro, the traditional—and still the most economical—storage
solution.

Demand and Mandate for Energy Storage

California’s RPS benchmarks set the timeline for bringing
energy storage online. Without storage, sources of renewable power are
susceptible to curtailment because
they lack the load-following characteristics required by the grid.
Additionally, daily load ramping requires
spinning reserves or other forms of stand-by power sources that can be brought
online quickly to match customer power use at the beginning and end of the work
day. Energy storage added to the renewables portfolio helps
solve those problems by making renewable power available when needed
to match demand.

California’s energy storage mandate (AB
2514) added a twist to existing demand for energy storage. Adopted in 2010,
the bill required California’s three largest power generating utilities to
contract for an additional 1.3 GW of energy storage power generation (meeting
certain criteria) by 2020, coming online by 2024.

Although California already leads the way in promoting
energy storage, lawmakers determined that more
efforts were necessary to support the policy and, in September 2016,
adopted four new laws (AB
2861, AB
2868, AB
33 and AB
1637) to foster and streamline California’s storage market. These laws (i)
improved the conflict resolution procedures for interconnection disputes, (ii)
directed utilities to consider the role of energy storage as a distributed
energy resource that can provide benefits to the grid, (iii) focused on the
role of bulk storage (such as pumped storage hydro, compressed air and
batteries) in integrating renewables into the electrical grid, directing the
California Public Utilities Commission, in coordination with the California
Energy Commission, to evaluate the potential for all types of long duration
bulk energy storage resources to help integrate renewable generation into the
grid, and (iv) expanded funding incentives for customer-sited storage projects.

Supply Pipeline for Energy Storage

According to records available from the Department of
Energy, the following California energy storage projects are announced or
underway:

Total power output from the table above is approximately 3.1
GW, of which 2.6 GW, roughly 84 percent of that total, comes from projects
outside the gambit of the California storage mandate. AB 2514 expressly
excludes pumped
storage hydro >50MW, which comprises 2.3 GW. The CAES project uses gas
combustion, which is off-pace with the bill’s preference for clean and green
storage solutions; and PG&E
has not submitted it for qualification under the mandate. Clearly, the
investor-owned utilities are contracting to fulfill the state’s gross megawatt
requirements for storage, notwithstanding AB 2514. The real impact of AB 2514
is the impact on non-traditional storage solutions.

Disrupting the Grid with Distributed Storage

Gross megawatts does not tell the whole story. Although
lesser in power, the remaining 16 percent of pipelined storage illustrates a
new mindset in grid management that looks for localized solutions to localized
problems. If anything, AB 2514 is pushing the grid to pay more attention to the
“where” and “how” of power supply more than “how much.”

A quick pass through the list above shows a breadth of
storage technologies in the works. Although the list above is limited to
projects greater than 5 MW, the deployments include lithium-ion, zinc-air,
thermal, and even flywheel technologies.

Additional solutions not captured in the chart above include
over 60 projects with power ratings less than 5 MW. These include a network of
batteries by Green
Charge Networks for over 30 electric vehicle charging stations.

Also not captured in the list above, at least one utility
has inked megawatt-scale energy conservation contracts (provided through smart
building management services) awarded to AMS
and NextEra.

Southern California Edison has turned its AB 2514 efforts
into a public relations campaign, in conjunction with California lawmakers, telling a story about the complexity of
valuing storage that ultimately resulted in a decision to purchase more than
five times the amount of qualifying storage required by California’s mandate.

Although nearly four years have passed on AB 2514’s
procurement schedule (summarized below), only the 2014 benchmarks are complete.
Contracting targets for 2016 are approved,
but bidding is still in process.

Looking forward, the projects discussed above remain the
exception rather than the rule. Utilities and regulators are still trying to
wrap their heads around how to value and price energy storage.

At the same time, it is too early to determine whether
distributed storage will disrupt grid management or be swept aside to molder on
the sidelines. Only the first round of four scheduled procurements under AB
2514 is complete; the second is underway. Already, one of the constituent
utilities has determined to integrate distributed energy storage now and is
acquiring storage contracts far in excess of the mandate. Time will tell
whether that approach is foresight or foolishness.

For the time being, traditional storage continues to
dominate the grid’s requirements. However, the first four years of AB 2514
storage projects may ultimately “stick,” i.e., prove their value to the grid
notwithstanding the mandate. In that case, the projects currently underway will
provide the experience and insight for rethinking power delivery at every
level.

With support from policy makers such as those in California,
as technology improves and costs become more competitive, the “cool kids” in
energy storage could conceivably help to reshape an entire industry.